Limitation Act and the Auction Dates Conundrum

What happens if you borrow money from the bank to purchase a property and fail to pay back the monies you owe to them?

Short answer: the bank can actually apply for an order for sale to auction off your house to settle the debt that you owe them. However, what happens if they fail to complete the auction after multiple tries? Is there a time frame for the bank to complete the auction? Let us find out more by looking into the recent Federal Court decision of RHB Bank Bhd v Dato Haji Muhammad Hamzah.

Brief facts of the case

Bank Utama (M) Berhad granted a loan to Dato Haji Muhammad Hamzah to finance the purchase of a land. Subsequently, Dato Haji Hamzah failed to make payment for the loan. However, no action was taken against Dato Haji Hamzah- the status quo remained as it was until RHB Bank Berhad acquired Bank Utama.

After the acquisition, Bank Utama decided to recover the loan monies from Dato Haji Hamzah. This was done via a statutory demand in 1999 (demanding the repayment of the loan) and subsequently an originating summons in 2001, where RHB succeeded and obtained an order for sale against Dato Haji Hamzah’s land in 2002.

Numerous attempts were made to auction off the land, but none of it succeed as the auction was either aborted due to the lack of bidders or it was called off due to the various applications that was filed by Dato Haji Hamzah to stop the auction from proceeding. This went on until 2017. When RHB attempted to get a new date in 2017, Dato Haji Hamzah filed an application to restraint RHB from further auctioning the land, recover any debts owed by him to RHB or to enforce the charge against him as (Dato Haji Hamzah claim) that the limitation period of twelve years (under section 21(1) of the Limitation Act) to institute or pursue such an action has set in, effectively barring any further action against him.

The court’s decision

The High Court outright dismiss Dato Haji Hamzah’s claim, stating that the final date that RHB acquired in 2017 was merely to obtain new auction date- the rules of limitation only comes into play if RHB was filling for a fresh action i.e. obtaining an order for sale/ commence a proceedings against Dato Haji Hamzah for his failure to satisfy the loan.

The Court of Appeal disagreed. In coming to its decision, the Court of Appeal held that an auction is considered an action  (based on its definition found under section 2(1) of the Act) and therefore is caught by the 12 years limitation set under section 21(1) of the Act. In any event, even if it is not caught by the limitation above, the Court also pointed out that the application will be caught by section 6(3) of the Act, which states that (amongst others) an action upon any judgment shall not be brought after the expiration of 12 years from the date on which the judgment became enforceable. 

The Federal Court disagreed with the Court of Appeal’s decision and affirmed the High Court’s decision.

The court’s rationale

In coming to its decision, the Federal Court held that:

1. The application by RHB to fix new auction dates were merely consequential proceedings taken to enforce and execute the order for sale that was granted in 2002 i.e. it is merely executing already existing proceedings to enforce a judgment- it is not a fresh action and therefore the Act is not applicable to such a situation. In can only be a fresh proceeding, if and only if RHB decided to only now (in 2017) to pursue enforcement proceedings (i.e. applying for an order for sale) against Datu Haji Hamzah for the monies that he owes them; and
2. An order for sale is not a judgment and therefore is not bound by the rules set under section 6(3) of the Act. This is because:
   1. The court hearing the application for an order for sale does not make any adjudication upon any substantive issues (i.e. determining the validity of the law or whether the law was applied correctly etc.); and
   2. The monies that Dato Haji Hamzah owed to the bank is not a judgment debt (a judgment debt is a money that a person owes to the party that won a legal case)- it is a debt owed under the provision of the National Land Code and RHB is merely exercising their rights to enforce a remedy that was provided for under the Code.

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